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http://dx.doi.org/10.11568/kjm.2015.23.1.81

LOCAL VOLATILITY FOR QUANTO OPTION PRICES WITH STOCHASTIC INTEREST RATES  

Lee, Youngrok (Department of Mathematics Sogang University)
Lee, Jaesung (Department of Mathematics Sogang University)
Publication Information
Korean Journal of Mathematics / v.23, no.1, 2015 , pp. 81-91 More about this Journal
Abstract
This paper is about the local volatility for the price of a European quanto call option. We derive the explicit formula of the local volatility with constant foreign and domestic interest rates by adapting the methods of Dupire and Derman & Kani. Furthermore, we obtain the Dupire equation for the local volatility with stochastic interest rates.
Keywords
local volatility; quanto option; Dupire equation; Fokker-Planck equation; stochastic interest rate;
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